Economics

economics

Economics studies how choices are

made when resources are limited but

wants are not.

the economic problem

The economic problem is the

fundamental challenge facing all

societies: how to satisfy unlimited wants

and needs with limited resources.

resources

LAND

Natural inputs and space used for

production.

LABOUR

Skills, knowledge and effort used in

production.

CAPITAL

Produced equipment and infrastructure

ENTREPRENEUR

A person who starts and runs a

business by taking risks to earn a profit

relative scarcity

Those resources are limited relative to

people’s needs and especially their wants

- which are virtually unlimited

opportunity cost

Opportunity cost is the value of the next best alternative that is given up when making a choice.

Trade Off

Trade-offs occur whenever individuals,

businesses or governments make

choices between different ways that

scarce resources might be used.

Giving up multiple alternatives when making a decision.

-scarficing multiple alternatives

3 basic economic questions

What and how much to produce?

How to produce?

For whom to produce?

What and How Much to Produce?

This question involves making decisions about how resources should be allocated or used so that the right types and quantities of goods or services are produced

How to Produce?

This question is about deciding the best types of production methods to be used in making goods and services.

For Whom to Produce?

This involves how the goods, services and incomes that are produced in the economy will be divided or shared between individuals.

goods and services

Goods and services are what buyers and sellers exchange in the economy

Market

A market is any place — physical or online — where buyers and sellers exchange goods, services and information

economic resources

Economic resources — also called factors of production — are the inputs used by businesses to produce or supply the goods or services that we need and want

Natural Resources

Natural resources are the productive inputs that occur in nature

Labour Resources

Labour resources are the intellectual skills, knowledge and manual effort that people provide as members of the nation’s labour force

Capital Resources

Capital resources — or capital equipment — involve manufactured or producer goods

Entrepreneurship

Entrepreneurship refers to business owners who take risks to create products

measuring economic performance

• material standard of living - access to goods and services

• non-material factors (living standards)

Gross Domestic Product (GDP)

The total value of all goods and services produced in a country over a period of time

Comparing GDP across different years is how economic growth is measured

Economic growth is an increase in the size of a country's economy over a period of time

Unemployment Rate

The percentage of people looking for work but unable to find a job.

Inflation Rate

Measures how much prices

of goods and services increase over time

Interest Rates

The cost of borrowing money or the return on savings.

inflation

Inflation is a general increase in the level of prices throughout the economy.

he most commonly used measure of inflation is the Consumer Price Index, (or CPI).

Effects of inflation – on business

• Inflation increases the cost of inputs such as wages, raw materials, and energy, which raises business expenses.

• As prices rise, consumers have less purchasing power, leading to lower demand for goods and services, especially non-essential items.

• Inflation often leads to higher interest rates, making it more expensive for businesses to borrow money, which can reduce investment and growth.

Causes of inflation

• When the demand for goods and services is greater than the economy’s ability to produce them, prices rise.

• When the cost of inputs (such as wages or raw materials) increases, businesses tend to increase the prices of their final goods and services.

• When people expect prices to rise in the future, workers demand higher wages and businesses increase prices, which can further drive inflation.

Monetary policy

refers to the actions taken by a country’s central bank (in Australia, the Reserve Bank of Australia) to manage the economy by controlling the money supply and the availability of credit.

RBA

The RBA is Australia's central bank.

One of its main jobs is to set the official interest rate (also called the cash rate).

Unemployment

Results when the economy is unable to generate enough jobs for those workers who are willing and able to work.

Types of unemployment

Seasonal

Structural

Cyclical

Frictional

Long-term

Seasonal

People are out of work at certain times of the year due to seasonal demand (e.g., tourism workers)

Structural

there is a mismatch between the skills workers have and the skills employers need

Cyclical

Due to changes in the economic cycle; when demand is low, workers are not in high demand

Frictional

The time between a worker leaving one job and beginning the next

Long-term

Unemployed for a long duration, despite having skills and seeking work

Law of Demand

Law of Demand: As price increases, demand decreases (and vice versa), assuming all other factors remain constant.

Demand

the willingness and ability to buy a good/service at a particular price.

Factors that cause a demand curve to shift

• income of buyers

• consumer trends

• expectations of future price

• the price of related goods

• the number of potential buyers

Supply

Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices over a period of time.

law of supply

As the price of a product rises, the quantity supplied also rises, assuming all other factors remain constant. (direct relationship).